Confidence Game

Friday, 26 May 2006

I’ve often downplayed the Microsoft-Apple rivalry. In large part
this (my downplaying of the rivalry) is a reaction to the way that
the mainstream tech press has, for nearly two decades, overplayed
it.

Apple and Microsoft are not direct rivals. Apple’s Macintosh
business is built around selling computer hardware; their
competitors in this market are companies like Dell and HP and Sony.
Microsoft’s Windows business is built around selling operating
systems to PC manufacturers; the only competition they face is from
open source operating systems.

But there’s no denying the fact that they are, for lack of a better
term, orthogonal rivals. Windows and Mac OS always have been and
will be compared against each other. The companies themselves are
stark contrasts, as are their respective co-founders/leaders, Jobs
and Gates. They produce software of almost completely opposite
strengths and weaknesses.

And, it seems to me, the two companies’ fortunes often seem to be at
odds.

Microsoft spent the ’90s growing from a successful software company
into an industry-dominating titan. Apple spent much of the ’90s
fighting the perception that it was on the verge of going out of
business.

So far in the ’00s, however, things have swung the other way. Apple
is firing on all cylinders — the whole iPod/iTunes thing, Mac OS X,
the so far very successful transition to Intel processors — and
Microsoft… well, what is the deal with Microsoft? They’re
certainly not doing poorly financially; they booked $3.89 billion
in profit — profit! — in their most recent quarter. That’s
more than $1 billion in profit per month, and an 18-percent increase
over their profit from the same quarter a year ago. But their stock
price dipped on the news, because analysts expected even more.
Their stock, in fact, has been mostly flat since 2002, and
other than a spike at the tail end of the dot-com boom, hasn’t moved
much since 1998.

It seems almost beyond dispute that there’s a deep malaise
surrounding Windows Vista, Microsoft’s biggest and most important
upcoming product. Microsoft has been late with major new operating
systems before — in fact, to my memory, major new versions of
Windows have always arrived a year or two later than they were
originally promised. The biggest problem with Vista isn’t that it’s
late, but that people don’t really seem to care that it’s late,
because there doesn’t seem to be much in Vista that Windows users
are dying for. (Most of the cool features were cut during the
development process.)

At least from my perspective here on the Mac side of the fence, it
just doesn’t look like Windows Vista is going to offer much, if
anything, to make Mac users envious.

This isn’t gloating. Quite the opposite, in fact. Another reason
I’ve generally shied away from banging the Apple-vs.-Microsoft drum
here on Daring Fireball is to avoid falling into the
all-too-accurate stereotype of the Microsoft-bashing Mac enthusiast.
I understand the urge to root against Microsoft, the urge to gloat
over their problems, the desire to see them suffer in the market.

But it won’t be good for Mac users if Vista turns out to be a dud.
It might be good for Apple, but it won’t be good for Mac users.
What would be good for Mac users is for Windows Vista to ship with
innovative new features that are worth ripping off in a future
version of Mac OS X. Put another way: the better Windows is, the
more pressure Apple is under to improve Mac OS X.

In the very worst tradition of punditry, allow me to make a sweeping
generalization based on a few almost completely unrelated observations:
Microsoft is suffering from a lack of confidence, and Apple is
brimming with it.

Microsoft Needs Enemies

It is, admittedly, a cliché, but Microsoft is clearly a victim of
its own staggering success. What they’ve done best, historically, is
kill and/or neuter their competitors. That’s why they’re gearing up
for a fight against Google; Microsoft, as a company, defines itself
by its rivalries. They relegated early PC peers like WordPerfect,
Lotus, and Borland to relative obscurity; then, famously, they
outright obliterated Netscape.

In the ’90s, to sell copies of Word, they needed to beat
WordPerfect, and they did; to sell Excel, they needed to beat Lotus
1-2-3. Now, though, to sell new copies of Microsoft Office, they
need to beat older copies of Microsoft Office. Hence the
much-maligned ads in which Microsoft casts their own users
as dinosaurs simply because they haven’t upgraded to the latest
version of Office.

Most of the criticism of these ads revolves around the fact that
it’s a bad idea to insult your own customers. But what I found
interesting about them is the tacit acknowledgment that Microsoft’s
strongest competitor in today’s office software market isn’t
OpenOffice, or any other competing suite from another company, but
rather the Microsoft of a decade ago.

The problem with Google, as an “enemy” for Microsoft, is that Google
is even less of a direct rival to Microsoft than Apple is. Microsoft
sells software. Google does not sell software. The only way for
Microsoft to “beat” Google is for one of the two companies to enter
the other one’s market. Google doesn’t seem the least bit interested
in selling operating systems or office software — and even if they
do eventually enter those markets, it would likely be with software
they give away in order to generate advertising revenue.
Microsoft’s previous corporate rivals were companies that helped
Microsoft focus on its core competency: selling and developing PC
software. Obsessing about Google draws them away from that focus.

Which leads me to the aforementioned observation from which I drew
the conclusion that Microsoft has a confidence problem — this full
page ad on p. 33 of the 22 May 2006 issue of The New Yorker:

I’ll reproduce the text of the ad below, but I’ve posted a much
larger copy of the image over on Flickr so you can examine it
yourself.1 The ad reads:

Welcome to the people_ready business.

In a people-ready business, people make it happen. People, ready
with software. When you give your people tools that connect,
inform, and empower them, they’re ready. Ready to collaborate with
partners, suppliers, and customers. Ready to streamline the supply
chain, beat impossible deadlines, and develop ideas that can sway
the course of industry. Ready to build a successful business: a
people-ready business. Microsoft. Software for the people-ready
business. To learn more, visit microsoft.com/peopleready

Please note: I venture into the following criticism knowing
perfectly well that there is nothing more trite than a Mac nerd
mocking Microsoft marketing material. But here goes:

What the hell does any of this even mean?

E.g., if “people make it happen” in a people-ready business, who or
what makes it happen in non-people-ready businesses? Or is it not
possible for “it” to happen in a non-people-ready business? I dare
you to try to make this copy more devoid of actual meaning than it
already is. If there’s any logic at all, it’s circular: that the
people in a people-ready business are ready to build a people-ready
business.

And what’s the point of the decorative underscores — the
“people_ready” in the headline and the four “ready_”s tagging some
of the people in the photo?2

This ad epitomizes everything that’s wrong with Microsoft: they have
nothing new to offer. There’s nothing wrong with branding ads; I
like branding ads (e.g. Nike’s “Just Do It” and Apple’s “Think
Different” campaigns). But if this “people_ready” ad is supposed to
be about their brand, what is the message? The only message I can
suss from it is “Buy Microsoft software just because it’s Microsoft
software.” They would be better off running an ad that literally
reads “No one ever got fired for buying Microsoft” — at least that
would be bold.

I’m sure that when Vista and Office 2007 finally ship, Microsoft
will run plenty of ads touting tangible features of these products.
But this ad reeks to high hell of “We’ve got lots of money in the ad
budget but no new products to advertise, so we’ll buy some ads that
say nothing at all.”

This ad is almost offensively timid. And “timid” is not a word
normally associated with Microsoft — or any thriving company, for
that matter.

Apple and the New MacBooks

If that’s so, then why is the Mac market share, even after
Apple’s recent revival, sputtering at a measly 5 percent? Jobs
has a theory about that, too. Once a company devises a great
product, he says, it has a monopoly in that realm, and
concentrates less on innovation than protecting its turf. “The
Mac-user interface was a 10-year monopoly,” says Jobs. “Who
ended up running the company? Sales guys. At the critical
juncture in the late ’80s, when they should have gone for
market share, they went for profits. They made obscene profits
for several years. And their products became mediocre. And then
their monopoly ended with Windows 95. They behaved like a
monopoly, and it came back to bite them, which always happens.”

My point then was to emphasize how with the iPod, Apple is going for
market share, not per-unit profits: iPods tend to cost less than
comparable products from other companies.

But this sort of “guard the profit margins” strategy has in many
ways continued to undergird Apple’s Mac strategy in recent years. I
always liked Apple’s iBook laptops, but it was often quite obvious
that Apple crippled the machines in certain ways so as to protect
the sales of higher-profit PowerBooks. Examples:

Rather than give the 14-inch iBook a higher-resolution display,
it ran at the same 1024 × 768 resolution as the 12-inch iBook. You
got bigger pixels instead of more pixels.

iBook video cards were capable of desktop spanning with an
external display, but without the use of unsupported
third-party hacks, they only supported external displays to
mirror the built-in display.

The differences between the MacBooks and MacBook Pros are simple and
obvious: bigger screens, more ports and an expansion slot, backlit
keyboards, and a different case finish. Other than for high-end
video (and gaming, which today is more video-card-dependent than
processor-dependent), performance is not a differentiating factor.
MacBooks are fast.

A more cautious decision would have been to equip the MacBooks with
the slower Core Solo processor (as used in the Mac Mini),
maintaining a similar relative performance gap between the MacBooks
and MacBook Pros as there was between the iBooks and PowerBooks.

I don’t see how anyone can doubt that there are many people who, if
the MacBooks had shipped with Core Solo processors, would have
bought a MacBook Pro but who will instead now buy a (cheaper, less
profitable) MacBook instead. The $1099 MacBooks arguably offer the
most bang for the buck in any Mac that Apple has ever shipped.

Apple, it seems clear, is confident that they’re going to make it up
in volume.

Juxtaposition

I offer this juxtaposition between Apple and Microsoft simply as an
interesting contrast.

Confidence can lead to arrogance, both in individuals and in
organizations, but I don’t see that happening with Apple today. It
was arrogance in the ’80s when the Sculley regime maintained almost
absurd profit margins on Macintosh hardware. Today, Apple’s
confidence is leading them to lower their prices, not raise them.

It’s also leading them to simplify their product line. The new
MacBooks replace both the entire iBook line and the 12-inch
PowerBook.3

Maybe the lesson here is that you can’t make a billion dollars a
month in profit with a simple line of simple products. What I’d like
to think, though, is that the lesson is that good design can be good
business.

Microsoft, in contrast, plans to offer Windows Vista in seven
different editions: Starter, Home Basic, Home Premium,
Professional, Small Business, Enterprise, and Ultimate. The names
read like something out of The Onion.

Can anyone explain how this seven-tiered edition plan is good for
anyone other than the managers within Microsoft’s bureaucracy?
Microsoft is turning into a company that values management decisions
that increase complexity over design decisions that increase
clarity.

Or perhaps they’ve always had such values, but are only now
succumbing to the weight of the complexity of their systems and
processes. Derek Denny-Brown (a former Microsoft technical lead)
offered this insightful assessment of Vista’s development a
month ago:

Anyone who has read any modern management book (or lived in
the trenches) [knows that] more people does not equate to more
features. […] Vista isn’t neutered and delayed because of
any lack of people. It is a mess because of middle management.
In a large project, complexity is a logarithmic on
connections. 3 projects is 2x as complicated as 2 projects….
roughly.

It gets worse. At least at the time I left (6 months ago), I
saw very little evidence that the management of these failed
projects was getting any kind of a slap on the wrist. The
problem is that in an org that large with that [many]
dependencies, it was impossible to tell which team was
actually mismanaged, and which team just was dragged down by
the other mismanaged teams.

This is how a company with so many talented programmers can spend
six years developing an operating system that no one is excited
about.

Upton Sinclair wrote, “It is difficult to get a man to understand
something when his salary depends upon his not understanding it.”

That’s why it’s so hard for a company to break out of a slump
induced by poor management: the only ones who can address the
problem are the managers themselves.